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‘Public-private’ poppycock
By NICOLE GELINAS
NEW YORK POST
Last Updated: 12:21 AM, January 31, 2012
Posted: 10:18 PM, January 30, 2012
Gov. Cuomo wants to “build a new New York” — but he doesn’t want to pay for it. To get billions for construction, he’s turning to “public-private partnerships.” Sorry. Just as there’s no free lunch, there’s no free bridge.
Three weeks ago, in his State of the State Address, Cuomo vowed to “improve or replace more than 100 bridges.” The marquee project is a new Tappan Zee Bridge, to replace the one that’s falling down. It could cost from $5 billion to more than twice that.
In the real world, there’s one way to pay: Hike tolls (now $3 to $5 for cars), and, if needed, borrow the rest. But “even a significant toll increase is unlikely to fully fund the project,” as Merrill Lynch and Loop Capital warned then-Gov. David Paterson in a report two years ago. Charge nosebleed tolls and too many drivers would choose another route.
New York could borrow more, but taxpayers (already on the line for lots of existing state debt) would have to pay back the money.
Cuomo would leave these worries in the rearview mirror. He promises to minimize state bridge spending by “leverag[ing] state investment by a multiple of 20 to 1.” For every dollar the state spends, somebody else would put in $20.
Last week, Cuomo dropped a clue as to who and how. He attended an event headlined “Successful Public-Private Partnerships: Creating Jobs by Reinvesting in Our Infrastructure.” Under a standard “PPP,” a global company would borrow money and build the bridge, then collect the tolls and pay back the debt, making a tidy profit for as long as a century.
That sounds great — except for one detail. Whoever builds the Tappan Zee — the state, a big firm like Skanska or the Queen of England — the numbers don’t add up. The project still costs the same. And people will still pay only a certain toll before they stop going.
In fact, the PPP finances could be worse. The state can borrow tax-exempt, meaning it has lower borrowing costs. (Investors in state bonds don’t mind getting a lower interest rate, because they get the tax break.) Private companies can’t do that.
The difference could be big. For the state to borrow $10 billion for 30 years might cost $620 million annually — whereas a private company would pay $753 million. That annual gap works out to $2.1 billion today, in one lump sum — enough for many little projects.
Wouldn’t the private sector be so efficient that it would save money building and running the bridge? Maybe not. Private companies are efficient because they have to compete; this private company wouldn’t compete with anyone. It would be a monopoly, like Con Ed. Its captive “customer” would be the state.
The same is true of Cuomo’s proposal to build a convention center and casino in Queens. Genting, Cuomo’s preferred company, would pay the $4 billion, but only if New York gives it a regional monopoly on gambling, plus tax breaks. This isn’t healthy competition, but a protection racket.
As the state’s financial advisers said two years ago, a successful PPP requires “complex negotiations,” “high procurement costs,” “time-consuming implementation” and “continuous monitoring of service and quality standards.”
Hmm. A state that can’t build stuff the easy way won’t do better the hard way. Involving the private sector doesn’t eliminate the risk that taxpayers and drivers might get stuck with the bill for politicians’ giveaways, either.
Last week’s PPP event offered a clue to that, too. Although it covered a topic that could affect tens of billions of dollars in future state and toll-payer spending over many decades, the sponsors — the Democratic Governors’ Association — barred the door to the press, even if reporters promised not to eat the food.
You weren’t welcome unless you had thousands of dollars — up to $50,000 — to donate. Some toll. Nor has Cuomo told the public which business executives decided it was worth it.
Yet this wasn’t politics but policy. What were they afraid we’d learn?
The real answer is in the budget. New York spent $132.7 billion last year — including $86.3 billion on social services and education. It should be able to find bridge money the old-fashioned way: responsible budgeting. No one wants to donate thousands of dollars for that.
Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal.
Read more: http://www.nypost.com/p/news/opinion/opedcolumnists/public_private_poppycock_Y1C0QYyVj2MOsAS1cheOzH#ixzz1lNyEJwb2